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Quantifying Forward Guidance and Yield Curve Control

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Abstract

This study evaluates the effectiveness of Japan's unconventional monetary policies over the past quarter century within a unified term structure framework. It specifically examines the impact of the Bank of Japan's (BOJ) outcome-based forward guidance and yield curve control (YCC) and incorporates other policy types into the framework. The findings show that the BOJ’s forward guidance and YCC have both had a significant impact on the shadow rate. Forward guidance accounted for most of the policy impact in the early stages of unconventional monetary policies and remained influential throughout. YCC, since its introduction in 2016 until March 2022, contributed to more than a third of the policy impact. Furthermore, these policies have been effective in raising output and inflation.

Suggested Citation

  • Junko Koeda & Bin Wei, 2024. "Quantifying Forward Guidance and Yield Curve Control," FRB Atlanta Working Paper 2024-8, Federal Reserve Bank of Atlanta.
    • Handle: RePEc:fip:fedawp:99037
    DOI: 10.29338/wp2024-08
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    References listed on IDEAS

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    1. Shintani, Mototsugu, 2005. "Nonlinear Forecasting Analysis Using Diffusion Indexes: An Application to Japan," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 37(3), pages 517-538, June.
    2. Scott Joslin & Kenneth J. Singleton & Haoxiang Zhu, 2011. "A New Perspective on Gaussian Dynamic Term Structure Models," The Review of Financial Studies, Society for Financial Studies, vol. 24(3), pages 926-970.
    3. Hiroyuki Kubota & Mototsugu Shintani, 2023. "Macroeconomic Effects of Monetary Policy in Japan: An Analysis Using Interest Rate Futures Surprises," CARF F-Series CARF-F-555, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
    4. Jonathan H. Wright, 2011. "Term Premia and Inflation Uncertainty: Empirical Evidence from an International Panel Dataset," American Economic Review, American Economic Association, vol. 101(4), pages 1514-1534, June.
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    More about this item

    Keywords

    forward guidance; effective lower bound (ELB); liftoff; term structure; shadow rate; macro finance; unspanned macro factors; yield curve control; Japan;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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